Speak Out: A history of home values

Replies (23)

• Thanks Shapley, Just when I needed cheering up.

  I wonder if any of Lemmie's favorite wine is still available.

  -- Posted by Old John on Sat, Sep 4, 2010, at 9:34 PM

• Shapley,

  I saw that graph some time ago and printed it. I keep it on my desk and look at it from time to time as a reminder of what I think we can expect to happen. I believe the dotted line bringing the prices down to reality has been added. Will check that out when I get home in a few days.

  Wait until the next round of foreclosures.

  It is as someone on here has reminded us time and again... until the bad investments are cleared all that government meddling is going to do is prolong the agony and make things worse.

  -- Posted by Have_Wheels_Will_Travel on Sat, Sep 4, 2010, at 11:01 PM

• Never fails, Wheels.

  -- Posted by voyager on Sun, Sep 5, 2010, at 2:24 AM

• "a modern house is FAR larger than most older houses and has significantly more expensive luxuries"

  I would include in those luxuries the media room, the master bath with sunken whirlpool tub, the built in wine cooler...you get the drift. This was all enabled by the Federal Reserve setting interest rates artificially low, promoting malinvestment and over building. Credit has been much too available. The construction industry and realtors seized upon the bonanza. The ready availability of credit is also partly responsible for the increase in prices--cars and college education included. Nothing was out of anyone's reach--absolutely nothing. Crave a DVD player in the van? Go for it! Want to go to an administration-heavy university, with dozens--no, hundreds--of employees who have absolutely zero to do with the mission? Be our guest!

  Goodness, how I wish the Fed and its tinkering wizards would disappear. (Well, I want the wizards "reassigned" to real jobs, probably pretty heavy on the manual labor side.) There is absolutely, positively NOTHING "reserve" about the Federal Reserve Bank!

  -- Posted by Givemeliberty on Sun, Sep 5, 2010, at 8:41 AM

• While this chart is surely not 100% accurate, I would disagree that it is totally because of technology. Prices have come down on technology items as they tend to become mainstream.

  And certainly those modern conveniences did not all hit the market between 1997 and 2004.

  -- Posted by Have_Wheels_Will_Travel on Sun, Sep 5, 2010, at 9:27 AM

• The chart is intersting but I don't think it is calculated correctly. You can't just go by home value, you need to factor in the value of the dollar too.

  Sometimes it is not that the value of something goes up and that is why you see a price increase, but that the value of our dollar actually went down and the price increase reflects that difference.

  -- Posted by Skeptic1 on Sun, Sep 5, 2010, at 9:33 AM

• Something not quite copacetic with the chart - the date in the lower left is 2006, the tic marks on the time axis are different after 2006 - suggesting that someone other than the original author has filled in the subsequent data.

  Look on the bright side - lower home prices yield lower property taxes and lower insurance rates - at least for the short-term. Plus, have the opportunities to meet a whole new class of neighbors now able to afford the lower prices :-)~

  -- Posted by fxpwt on Sun, Sep 5, 2010, at 9:38 AM

• Adidas

  According to the chart, inflation is factored in. It would be a lot different without that.

  -- Posted by Have_Wheels_Will_Travel on Sun, Sep 5, 2010, at 9:43 AM

• Another phrase in Nil's thoughtful comment:

  "if those cities had grown slower over the last 120 years they would not be among the 20 largest metro areas today"

  Malinvestment and unsustainable expansions occur in the business sector, too, when interest rates are artificially low. Is it possible that those cities were over grown largely because of industry expansion that was not free market driven?

  The aggregate of thousands of interpersonal transactions, between sellers who produce things that people really want/need, and buyers who really want/need what is for sale, needs to return to being the major driver of the economy. Not some castle-in-the-air model, propped up by artificially low interest rates (i.e., "free money"), social engineering through a capriciously designed tax code, or government subsidy (if it's a good thing, it flies on its own, without a subsidy.)

  -- Posted by Givemeliberty on Sun, Sep 5, 2010, at 10:09 AM

• If the small businessman can not get the loan, what difference does it make how low the loan rate is.?

  -- Posted by voyager on Sun, Sep 5, 2010, at 1:09 PM

• voyager,

  I would assume the businessman could not get the loan at the rate he was willing to pay. If the lender felt that a certain rate was necessary to compensate for the risk being taken, and the businessman was unwilling to accept that rate (and other lenders could always--in a free market--compete with lower rates), then he wouldn't "get" the loan.

  If his business expansion was risky--based on his lack of credit worthiness or his poor planning, timing, or market projections--the whole undertaking could collapse, leaving him to pay loan costs without adequate revenue, and/or the lender eating up some "toxic assets."

  The impartial market, in this way, would shield someone from their own poor judgement. You can't get "upside down" on a loan you never qualify for.

  Artificially low rates do not allow lenders to dampen the spirits of risky borrows who will not be able to repay. They just expand away, speculating wildly. Then, POW, the borrower defaults, and/or the lender needs a bailout.

  This is all about allowing the market to adjust, based on risk.

  -- Posted by Givemeliberty on Sun, Sep 5, 2010, at 2:12 PM

• A while back, I compared the Obamacare approach to health care to the governments approach to the housing problem. I stand by the comparison.

  When the cost of housing was seen to be rising, threatening the ability of lower income families to afford housing, the government stepped in. The first approach was to build low-rent units. These quickly deteriorated into 'slums', largely because they were shoddily built, usually located in already deteriorated neighborhoods, and tended to concentrate large numbers of poor people together.

  This would equate to the government's approach to health care through free clinics and sliding-fee clinics. The people who could afford better tended to avoid them, so they became associated with poverty.

  The first approach having failed, the next approach was for the government to purchase homes scattered about in better neighborhoods, and to make these available to the poor. To avoid the stigma of of government housing, these were usually rented from private owners, under the theory that no one but the landlord would know whether the tenant was paying his own rent or the rent was subsidized by the government. The result was that landlords charged higher rent than the property would otherwise earn, because of the destructive tendencies of many of the tenants, and also because they could get away with it.

  This approach equates to the Medicare/Medicaid approach. The government paid the cost of medical care to regular providers of services, in the same manner as insurance companies pay. The result was that providers charged higher prices to Medicare/Medicaid, to cover the cost of paperwork, and also simply because they could get away with it.

  The latest approach was the Fannie Mae/Freddie Mac approach. Rather than addressing the rising costs of housing, the government decided to 'help' potential homeowners by providing them financing to buy the overpriced homes, rather than addressing the cost factors themselves. Thus, the government says the best approach to affording an overpriced home is to pay the high price plus interest, with the government guaranteeing the seller by co-signing the loan. The result is the disaster that we know as the 'housing bubble'.

  Obamacare seeks to address the rising cost of medical care in the same manner. Rather than addressing the root cause of rising medical costs, Mr. Obama thinks the best approach is to increase access to financial services to pay the high costs of medical care, with the government co-signing as a partner in the insurance business. The result should be predictable to anyone paying attention.

  Methinks it is no coincidence that Mr. Obama was one of the staunchest defenders of Fannie Mae/Freddie Mac when they were under fire and threatened with reform by a Republican Congress. He sees now nothing wrong with their approach to curing the housing crisis, and refuses to acknowledge their part in creating it.

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 9:24 AM

• Look on the bright side - lower home prices yield lower property taxes and lower insurance rates - at least for the short-term. Plus, have the opportunities to meet a whole new class of neighbors now able to afford the lower prices :-)~

  -- Posted by fxpwt on Sun, Sep 5, 2010, at 9:38 AM

  My property taxes dropped enough this year to decrease my mortgage payment by >$30/month. As for insurance, I believe you have to take the intiative. If you increased coverage as your home value rose, you'll need to contact the insurer to decrease it to market value...note to self.

  fxpwt, it's not necessarily a good thing to get the new neighbors. In my Las Vegas neighborhood, prices have fallen so dramatically, and so many properties are sold as foreclosures and short sales, that investors can and have bought them for rental properties. Your neighborhood of owners can become a neighborhood of renters.

  -- Posted by Maynard on Tue, Sep 7, 2010, at 10:13 AM

• Insurance should be based on replacement value, not property value. If you lose your home, you want to be able to rebuild one of comparable size and quality (if not better), not one of comparable value, particulary if the value has declined markedly.

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 10:17 AM

• You're right about the value comparisons, but not about my intent. I'd want to move to a better neighborhood and buy a bigger house with the proceeds of the insurance.

  -- Posted by Maynard on Tue, Sep 7, 2010, at 12:55 PM

• Has the cost of replacing a house declined as much as the present house resale has?

  In the late 60's early 70' a pretty good house could be built for under $25,000. That house could have sold easily for $125,00 not long ago if reasonably maintained.

  I agree with the idea of replacement value coverage. How is that determined in today's situation? [Assuming there in no morgage involved]

  -- Posted by Old John on Tue, Sep 7, 2010, at 1:04 PM

• Old John wrote:

  "I agree with the idea of replacement value coverage. How is that determined in today's situation?"

  I'm not entirely sure. I would guess the best way to be looking at the want ads to see what new houses of a similar size and construction are costing. That should give a pretty good figure.

  A good builder should also be able to give you a fair price per square foot estimate for houses of similar construction. The best way, I suppose would be to have a builder give you an estimate (which may cost a few bucks). I think I would add about 10% to 15% to the estimate when sizing the policy.

  Don't forget to figure in the furnishings and contents, as well.

  I believe my agent gave a checklist once, back when we switched our insurance to State Farm on our previous home. You might see if your agent has such a thing.

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 2:31 PM

• In the late 60's early 70' a pretty good house could be built for under $25,000. That house could have sold easily for $125,00 not long ago if reasonably maintained.

  I agree with the idea of replacement value coverage. How is that determined in today's situation? [Assuming there in no morgage involved]

  -- Posted by Old John on Tue, Sep 7, 2010, at 1:04 PM

  It also depends if the government has opened your neighborhood up to section 8 housing. If so you better get rid of it fast. The liberals are good at ruining your investments.

  -- Posted by We Regret To Inform U on Tue, Sep 7, 2010, at 3:58 PM

• Don't forget to figure in the furnishings and contents, as well.

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 2:31 PM

  You may want to check with your insurer to see if you have any say in the amount of coverage for contents, excluding riders. My insurer, State Farm, writes coverage for contents as a fraction of the coverage for the dwelling. When I increased the dwelling coverage, the contents coverage increased automatically, to a ridiculous amount. I questioned it, and they told me it couldn't change. I called a couple of other companies and they told me the same thing.

  -- Posted by Maynard on Tue, Sep 7, 2010, at 4:05 PM

• Maynard. That may be true, it's been some time since I've changed policies. However, they will sell separate policies for some things, such as collections of valuables, firearms, and the like. If your policy's content coverage value is not sufficient to cover all of your contents, you may want to take out such a policy.

  There are often a number of exclusions on contents, as they sometimes require separate policies for certain items.

  In any case, it is a good idea to have a record of contents tucked safely away, in a fireproof location. It protects you against bad memory if you ever to file a claim.

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 4:13 PM

• We're starting to sound like insurance salesmen here...

  -- Posted by Shapley Hunter on Tue, Sep 7, 2010, at 4:14 PM

• Generally no need to insure the value of the lot, which in itself could be in the 10% - 20% range of the appraised value of the total property, house and all.

  Suggest to take a hard look at the deductible level - as to whether one wants a true insurance-against-catastrophic loss policy (high deductible), or a mis-named maintenance plan (low deductible).

  Insurance is typically one of those things that doesn't get looked at too hard, especially if it is rolled into an escrow account. Just bleed a little every month, instead of hemorrhaging once a year - at least it doesn't feel as bad.

  Always get a chuckle from those who say, "awww, it's not worth the trouble for just five or ten or twenty dollars difference per month" to which I respond in my best politically-correct manner, "and just how long does it take you to earn that few extra dollars each and every month, after taxes?"

  Funny (to me) how many times things become worth the trouble using that perspective. If that doesn't work, there's always, "and just how long could that keep you in Stag?" :-)~

  -- Posted by fxpwt on Tue, Sep 7, 2010, at 5:06 PM

• fxpwt

  I was in the Jackson tornado. I had no problem but I had replacement on my policy. I heard many nightmares about some of the companies. It took some people 2 years to settle and some didn't get near what the cost was.

  I pay about an extra $300 a year to get good coverage. It is more than worth it if you get hit.

  -- Posted by We Regret To Inform U on Tue, Sep 7, 2010, at 6:31 PM